All across America every level of government is wrestling with the largest deficits in their history-in short, they are bankrupt. Because the federal government is broke, the money they used to allocate to the states has been drastically reduced. Subsequently the money states sent to help the local and county municipalities has also been reduced, causing a series of crises across America. Education is being hard hit as counties reduce the number of school teachers while increasing the size of classrooms and police, fire and rescue services are reduced as well.
Different states are taking different approaches to soaking up the red ink by reducing expenses and/or increasing taxes. From sea to shining sea, property taxes are going up, forcing people to pinch further and if they are retired, to find jobs in order to pay for the increased cost of living.
Meanwhile, Standards and Poor is busy re-assessing the bond rating of states, municipalities and countries. California, which faces a $38B deficit, has just had its municipal bond rating dropped to just above junk bond status. As a result, the state will face greater financial pressure as they will now have to pay more in interest to lure new bond investors. Exasperated by the mounting debts in the State of Massachusetts, House Speaker Thomas M. Finneran declared "We've depleted all the options. The wolf is at the door. It's what I call lifeboat time."
What other options or life boats do states, counties and municipalities have after they downsize and increase property taxes? Fire sales.
Fire sales can take the following forms: direct sell off to a direct buyer, public-private partnership or incorporation. The first two techniques are not new to government. Since the 1980s, America has been reducing the size of government by privatizing which is a direct sell off of a government asset. We probably should not be all that surprised at what government does in the future. It was President Reagan who started to privatize government in the 1980s. Britain's Prime Minister Margaret Thatcher encouraged him to turn to economist Friedrich von Hayek who wrote Road to Serfdom. In it Hayek advocated free markets and the downsizing of government with a market-based economy, taking the place of government and becoming the new center.
Building on Reagan's legacy, the first President Bush issued Executive Order 12803 calling for "the disposition or transfer of an infrastructure asset such as by sale or by long-term lease, from a state or local government to a private party. Examples of such assets include but are not limited to: roads, tunnels, bridges, electricity supply facilities, mass transit, rail transportation, airports, ports, water ways, water supply facilities, recycling and wastewater treatment facilities, solid waste disposal facilities, housing, schools, prisons, and hospitals." Actually, we the people should be asking about the fiscal management of our leaders. It appears that the government we pay taxes to is not doing their job and we have little to show for it.
Then in 1994 President Clinton took the concept of a market-based economy through smaller government to the next step by introducing a concept called public-private partnership which was the focal point of "reinventing government."
A public-private partnership is a business arrangement between public and private partners. The public partners represent all levels of government: local, county, state, federal, international and foreign governments while the private partners are businesses, foundations, and non-governmental organizations. When a government spins off or sells its assets to reduce debt, this new partnership either receives it as a transfer or buys it outright. We should note that if the public side, which represents government, is broke then only the private side or multinational corporations and foundations have the money to purchase it. That means that the power over that asset is transferred from government to the partnership and the partnership member that has the deepest pockets has the greatest control. In this arrangement, government and business "co-own" the former government asset and their purpose is to make a profit. All you have to do is listen to the news or read the newspapers to see "public-private partnership" popping up all over.
Going back to the legacy of Reagan and Thatcher, these two leaders started a new world revolution by moving away from state control to the new market-based global economy. Like a roaring lion, this new market-based economy needs all of the stock shares it can find to fill its belly. After all, what will investors be tantalized with if they do not have new offerings? So how about buying Chicago, Inc. or Montgomery County, Inc.? Is that so far fetched? No. In fact, Wall Street will probably do a Fred Astair tap dance while they calculate the amount of syndication fees they will earn. They will probably even invoke Thatcher's mantra of a "capital-owning democracy in which people own houses, shares and have a stake in society."
Now, let's take a look at how attractive this could be. Think of the growth counties and cities would have as a result of trying to beat out one another for the investment dollar of trusts, 401ks and mutual funds. Furthermore, with the new Bush tax stimulus program designed to provide tax-free dividends, the municipal bond debt could be converted to shares, thus eliminating the debt and transferring it to the investors! Is this as weird as putting a man on the moon? No. Stay tuned for you first read it here.
� 2003 Joan Veon - All Rights Reserved
Joan Veon is a freelance international reporter,
covering 57 global meetings around the world. She is also president of
Veon Financial Services, Inc. In this regard she writes two newsletters.
One is a quarterly economic newsletter and the other is on geo-political
issues which also covers meetings she covers. Her
website is www.womensgroup.org.
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"Then in 1994 President Clinton took the concept of a market-based economy through smaller government to the next step by introducing a concept called public-private partnership which was the focal point of "reinventing government."